Cal-Maine Foods, Inc. Manik Malhotra Quintus Yang 30th March, 2017

AGENDA Current Holding Company Overview Macroeconomic Overview and Drivers Industry Overview and Analysis Financial Analysis DCF Valuation Comparable Valuation Technical Analysis Further Market Prospects Recommendation

CURRENT HOLDING COMPANY OVERVIEW MACROECONOMIC OVERVIEW INDUSTRY OVERVIEW

CURRENT HOLDING Historical Transactions and Values Dividends Received 12/16/2015 – Bought 100 at $47.68 Current Price (27th March) – $37.50 Dividends Received 1/25/2016 – $0.751/share 4/25/2016 – $0.441/share Realized Return Return from Dividends – 1.192/47.68 = 2.5% Unrealized Return Market Return – (37.5-47.68)/47.68 = -21.35% Holding Period Return = -18.85% Source: Google Finance: https://www.google.com/finance?q=NASDAQ:CALM As of 27th March, 2017

CURRENT HOLDING Stock price change from December 2015 52 Week Range – $35.10 to $55.16 Market Cap – $1.82 billion Dividend Yield – 2.50% TTM P/E – 186.79 Source: http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=CALM&insttype=Stock&time=8&freq=1 Google Finance: https://www.google.com/finance?q=NASDAQ:CALM

88% Customers are Retailers COMPANY OVERVIEW Business Overview Largest producer and marketer of shell eggs in US Founded in 1957 in Jackson, Mississippi Publicly traded on NASDAQ under symbol “CALM” in 1996 Fully integrated operations Production, grading, packaging, marketing and distribution FY 2016 Result: U.S. fresh shell egg market share - 23 percent Record sales of $1.9 billion in FY 2016 (21% increase) Geographic Presence Customers % FY 2016 Sales Walmart and Sam’s Club 28.9% H.E. Butt and Co. 9.1% CCF Brands 8.3% Publix Super Markets 8.2% Top 10 Customers 70.6% 88% Customers are Retailers Source: Cal Maine Investor Relations https://docs.google.com/viewer?url=http%3A%2F%2Fcalmainefoods.com%2Fmedia%2F1135%2Fcalm-january-2017.pdf

Non-specialty shell eggs PRODUCTS AND BRANDS Products Descriptions Non-specialty shell eggs Normal eggs Price is cyclical Inelasticity of demand, small increases in production or decreases in demand can have a large adverse effect on prices Specialty Shell Eggs Nutritionally enhanced, cage free, organic and brown eggs Growing Segment of the market Price is non-cyclical and generally higher Speciality Eggs Brands – Egg-Lands Best, Land’O’Lakes, Farmhouse, 4-Grain Egg Products Shell eggs broken and sold in liquid, frozen and dried form 2016 Revenue Breakdown 2015 Revenue Breakdown Source: Cal Maine Investor Relations https://docs.google.com/viewer?url=http%3A%2F%2Fcalmainefoods.com%2Fmedia%2F1135%2Fcalm-january-2017.pdf

MACROECONOMIC OVERVIEW Population Growth Egg Consumption per Capita Non-Specialty Shell Egg Prices Feed Cost Source: IBISworld for Population Growth USDA reports for Shell Egg Prices Investor Relation Reports for egg consumption and feed cost data

MACROECONOMIC OVERVIEW EGG PRICES NET INCOME Source: 10 K Reports https://www.sec.gov/cgi-bin/browse-edgar?CIK=calm&owner=exclude&action=getcompany

Threat of Substitute Products Bargaining Power of Suppliers INDUSTRY OVERVIEW PORTER’S FIVE FORCES Competitive Rivalry 10 largest producers own 50% of industry layers Top 3 producers have 40-45% market share 56 producers have a flock of more than 1 million, represented 96% of industry layers Competitive Rivalry HIGH Threat of New Entrants Moderate Bargaining Power of Customers Threat of Substitute Products Low Bargaining Power of Suppliers Threat of New Entrants Entrants have to follow FDA regulations Players exist with low capacity Threat of Substitute Products Egg is considered the cheapest protein product Egg Consumption per capita is relatively stable Bargaining Power of Suppliers Prices of Soybean & Corn controlled through index Bargaining Power of Buyers Buyers can easily shift to other egg brands

MANAGEMENT TEAM Fred R Adams Jr Adolphus B Baker Sherman Miller Founder and Chairman Emeritus Adolphus B Baker President, CEO and Chairman Sherman Miller Vice President, COO and Director Chairman of Board from 1982 to 2012 CEO since 1969 to 2010 Also served as the chairman of National Egg Company and United Egg Producers Chairman of Board since 2012 President and CEO since 2010 Mr. Adams son-in-law Member of board since 2012 Chief Operations /officer since 2011 Graduated in 1997 in poultry science and directly joined Cal-Maine Adams family owns 31% of the company and has 66% of voting rights Management team has consistent vision of the firm’s growing strategy Source: 10 K Reports https://www.sec.gov/cgi-bin/browse-edgar?CIK=calm&owner=exclude&action=getcompany

GROWTH STRATEGY Enhance production capacity and efficiency Completed 20 acquisitions since 1989 Recent news: Acquired happy hen farms in February Acquire existing production and processing facilities Over $86 million of capital projects currently underway which will increase Cage-Free and Organic capacity Updated the facilities to be more efficient, mechanical and less labor-intensive Enhance production capacity and efficiency Offer nutritionally enhanced eggs, cage-free and organic eggs to meet consumer demand in rapidly growing segment Benefit from higher and less cyclical selling price Increase value-added specialty egg business Source: 10 K Reports https://www.sec.gov/cgi-bin/browse-edgar?CIK=calm&owner=exclude&action=getcompany

COMPANY - SWOT ANALYSIS Strengths 1) Largest egg producer in US 2) Proven Management Team 3) Efficient operations Weakness 1) Dependence on Egg Prices 2) Dependence on Feed Cost 3) High competition Opportunities 1) Increasing capacity through acquisitions to control supply 2) Growing market for high-margin specialty eggs Threats 1) Breakout of Avian Influenza 2) Acquisition-related litigations 3) Loss of major customer

FINACIAL ANALYSIS DCF VALUATION COMPARABLE ANALYSIS TECHNICAL ANALYSIS FURTHER MARKET PROSPECTS RECOMMENDATION

FINACIAL ANALYSIS Cal-Maine Foods Profitability Ratios Liquidity Ratios Greenblatt Ratios Turnover Ratios

COMPARABLE COMPANIES B&G Foods Sanderson Farms Dean Foods Tyson Foods Manufactures sells and distributes a range of self-stable and frozen food products B&G Foods An integrated poultry processing company that produces, processes, markets and distributes fresh, frozen and prepared chicken products in US Sanderson Farms A food and beverage company that processes and distributes milk and other dairy products in the US Dean Foods It operates in 4 segments of chicken, beef, pork and prepared food. The company raises and processes chicken into various products Tyson Foods Source: Capital IQ

FINACIAL ANALYSIS Cal-Maine Foods w.r.t Comparable Companies Gross Margin Net Margin BV/Share Debt/Assets

FINANCIAL ANALYSIS Factors of Moat Intangible Assets Switching Costs Network Effects Cost Advantage Efficient Scale The company has “Narrow” Moat on account of the following factors: None of the speciality egg brands have a strong recall value No switching costs associated for customers Having the largest capacity is a source of moat but there are competitive pressures Upgrading its infrastructure regularly to ensure cost reduction but ultimately the fluctuations in egg prices can erode all developments Way too many competitors in this field Source: 10 K Reports MorningStar Economic Moat

DCF VALUATION Assumptions – Revenues & Cost of Sales Source: 10 K Reports https://www.sec.gov/cgi-bin/browse-edgar?CIK=calm&owner=exclude&action=getcompany

DCF VALUATION Assumptions – Discount Rate

DCF VALUATION Valuation – Perpetuity Growth Method Discount Rate – 13.31% Terminal Discount Rate – 11.30% Terminal Growth Rate – 3.00%

DCF VALUATION Sensitivity Analysis

The price range using comparable analysis is between $35.5 and $37.4 COMPARABLE VALUATION The price range using comparable analysis is between $35.5 and $37.4 Source: Capital IQ

TECHNICAL ANALYSIS The moving averages are on a downward trend. Source: http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=CALM&insttype=Stock&time=8&freq=1

FURTHER MARKET PROSPECTS The company’s stock price remained constant with the announcement of third quarter results For the last 2 months the market closing price of stock has hovered between 37 and 39.8 We believe that the stock price will further fall down with fourth quarter results that will be announced in June, since the egg prices are still at a low and company will have an overall negative year With time, the prices of egg will rebound back as the market will reach a price equilibrium since smaller egg producers will not be able to sustain at such price levels Also Cal-Maine completed 2 acquisitions last year and it is the right time to acquire companies since they will be available at cheaper prices The above two factors and increase in specialty egg business with time will help in rebounding the stock price once the conditions stabilize in this industry Overall, the company is a long term growth stock

Specialty Egg Business RECOMMENDATION Consumer Base Eggs will always be consumed by the people and the demand will always increase until there is a substitute for egg Management Team The management team has been stable and they are the majority shareholders and will work for the benefit of the shareholders Specialty Egg Business It’s just been 1.25 years since we have held this stock. With more time there will be an increase in specialty egg business which will reduce cyclicity and increase revenue

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